Fiscal 2019 – moving with the times

Arix Bioscience (Arix) is a listed global venture capital (VC) company that presents an opportunity for institutional and retail investors to participate in the high risk-return profile of early-stage biotech investing. Arix minimises risk through its expert investment team and with portfolio diversification, sourced via its extensive network and partners. Its NAV was £202m on 31 December 2019 – it has invested ca.£162m into its portfolio since launch in 2016, which now includes 16 companies. With a cash position of £55m at 31 December 2019, Arix is well positioned to support its current portfolio of investments.

• Strategy: Sourcing benefits from an established network and a strong scientific reputation. The portfolio is diversified by therapeutic area, treatment modality, stage of discovery/development and geography to balance the risk-reward profile of its investments. Value is realised when Arix successfully exits its investments.
• Fiscal 2019: Results for the period were in line with expectations. The fair value (FV) of Arix’s portfolio declined 17% to £152m (£184m), contributing to a 25% decline in its NAV to £202m (£270m). The decline was mostly caused by the fall in Autolus’s share price, which resulted in a £51m fall in Arix’s holding value.
• Outlook: Arix is not immune to market volatility caused by macroeconomic factors and general sentiment, but the business model does allow flexibility in the timing and mechanism increasing its cash position to expand the portfolio. Meanwhile, portfolio progress, both in terms of liquidity and operations, looks set to accelerate in 2020.
• Risks: Value inflection points include PC progression through clinical, regulatory, partnering and financial milestones. Given that 29% of the portfolio value is pre-clinical, the long-term risk lies in the investment team’s identification of innovation with clear commercial potential – allowing for successful exits.
• Investment summary: Arix stock is currently suffering from a market overhang and some negative sentiment towards biotech that is affecting its share price, and the share prices of some of its portfolio companies have fallen following IPO. Although the portfolio’s fundamentals are unchanged, in our view, investors should ensure that they understand the basis of the NAV and its discount before seizing the opportunity to participate in the basket of well-chosen biotech.